Vodafone agrees to deal with rival Telefonica Deutschland

Vodafone will give Telefonica Deutschland wholesale access to its high-speed broadband network to try to help secure approval for its acquisition of Liberty Global’s cable business in Germany and eastern Europe.

Seeking to increase competition in the German market and defuse criticism of its deal with Liberty, Vodafone said rival Telefonica Deutschland would be able to offer super-fast services on Vodafone and Liberty’s Unitymedia cable networks in Germany if the deal is approved. The networks cover 23.7 million households.

Telefonica Deutschland has nearly a quarter of the German mobile market, second to leader Deutsche Telekom and ahead of Vodafone, according to a 2018 estimate by VATM, which represents independent telecom firms. But it is a distant third in fixed-line broadband, with just 5.9 per cent.

Telefonica Deutschland Chief Executive Markus Haas said the agreement would enable it to connect millions of additional households in Germany with high-speed internet.

“By adding fast cable connections, we now have access to an extensive infrastructure portfolio and can offer to even more O2 customers attractive broadband products - including internet-based TV with O2 TV - for better value for money,” he said. Vodafone, the world’s No.2 mobile operator, agreed a year ago to pay $22 billion for Liberty’s cable networks in Germany and eastern European markets to challenge the dominance of former monopolies such as Deutsche Telekom.

Vodafone’s German rivals criticised the deal, saying it would effectively recreate a business once owned by market leader Deutsche Telekom that was broken up on the orders of the regulator when it was sold.

Vodafone and Unitymedia, Liberty’s German business, operate in different parts of the country and thus do not compete head to head.

But a merged entity would have a very strong position in cable and broadband, in particular to multi-family apartment blocks, leading competitors to urge regulators to step in and ensure that they also have ‘last-mile’ access to households.

The European Commission opened a full-scale probe into the deal in December. Sources, however, said last month it had not raised any major concerns about the impact of the deal on Germany’s cable market.

Nick Read, CEO of Vodafone Group, said the cable wholesale access agreement enabled Telefonica Deutschland to bring faster broadband speeds to their customers, further enhancing infrastructure competition across Germany.

Vodafone said it expected the EC to test the Telefonica Deutschland agreement as part of a package of remedy measures, with a final decision by July.

Shares in Vodafone rose 1.3 per cent in early deals, while Telefonica Deutschland gained 1.9 per cent.

Meanwhile, Telecoms group Iliad has agreed to sell its mobile tower assets in France and Italy to Cellnex for 2 billion euros ($2.24 billion), in a deal aimed at strengthening its balance sheet and general financial position.

The group, which has shaken up the French mobile market since 2012 with low-cost services, is facing aggressive fixed and mobile discounts from rivals in its home country, and has had struggles over propping up its struggling share price.

Nevertheless, the planned asset sale lifted Iliad’s shares by around 6 per cent in early session trading, although Iliad’s stock price remains down by around 20 per cent so far in 2019.

The exclusive talks with Cellnex would lead to a sale of 70 per cent of the company that manages Iliad’s mobile telecom infrastructure in France, representing 5,700 sites, and the whole of the company that manages its towers in Italy, which has 2,200 sites.

Iliad, whose first-quarter sales grew by 7.7 per cent to 1.29 billion euros, expects both transactions to close in the fourth quarter of this year.

“This transaction is part of a long- term industrial strategy allowing us to accelerate rollout of our 4G and 5G networks and to increase Iliad’s investment leeway,” said Iliad chief executive Thomas Reynaud.

“This transaction supports the group’s new growth and innovation cycle. It enables more efficient infrastructure roll-outs in the future while meeting the challenges of further increasing territory coverage,” he added.

Cellnex, which already has 23,400 tower sites after adding 8,000 sites since 2015 through acquisition deals, is looking for ways to grow further in its six main markets in Europe, which encompass Spain, France, the Netherlands, the UK, Italy and Switzerland.

Reuters